Press Release Hikma reports full year London, 14 March 2018 Hikma Pharmaceuticals PLC (Hikma, Group) (LSE: HIK) (NASDAQ Dubai: HIK) (OTC: HKMPY) (rated Ba1 Moody s / BB+ S&P, both stable), the multinational generic pharmaceutical company, today reports its preliminary audited for the year ended 31 December. financial summary - core Core Group revenue of $1,936 million, down 1% and in constant currency up 1% 1, despite challenging market conditions in the US Core 2 operating profit of $386 million, down 8% and down 4% in constant currency Core basic earnings per share of 105.0 cents, down 11% and down 8% in constant currency Record cashflow from operations, up 51% to $443 million from $293 million Net debt reduced to $546 million from $697 million and healthy leverage ratios maintained financial summary - reported Reported Group operating loss of $747 million, down from income of $302 million, primarily due to the impairment of West-Ward Columbus intangible assets of $920 million and property plant and equipment of $164 million 3 Basic loss per share of 351.3 cents, compared to basic earnings per share of 66.5 cents Proposed full year dividend of 34 cents per share, up from 33 cents per share Strategic update Siggi Olafsson appointed Chief Executive Officer, bringing substantial commercial and operational capabilities and a strong track record of driving performance and delivering growth Enhanced the management teams across our three businesses to drive successful strategy execution, strengthen customer relationships and enhance the efficiency of our R&D program Commenced consolidation of our Generics manufacturing facilities and US distribution centres to create further operational efficiencies Reinforced our position as partner of choice in MENA through expanded partnership agreements with key partners, Takeda and Celltrion Launched 44 new compounds across all markets, expanding our global product portfolio Bringing all Hikma companies under a refreshed Hikma corporate brand to drive efficiencies, reduce complexities and mobilise employees to better serve our customers Initiating a new clinical endpoint study with respect to our ANDA submission for generic Advair Diskus Said Darwazah, Executive Chairman of Hikma, said: "We delivered a solid performance in at a challenging time for our industry, demonstrating the benefit of our diversified business model. Profitability in our Branded business remained stable and our Injectables business was resilient, maintaining strong profitability despite new competitors for our top products and benefiting from our strong market position in the US hospital segment. The increasingly competitive dynamics of the US market, including intense pricing pressure, had a material impact on our Generics business and, in particular, on West-Ward Columbus. This was further impacted
by the delay in approval for our generic version of Advair Diskus. As a result of these headwinds, we have had to take an impairment related to the West-Ward Columbus business to reflect our updated view of the fair value of this business. To be more competitive and achieve our ambitious goals, we are making transformational changes across the Group. We recently announced the appointment of Siggi Olafsson as Chief Executive Officer. Siggi is an exceptional leader with extensive experience in the industry. He is the right person to take the business to the next level. I am confident that the investments we have made across our businesses in in our people, our capabilities and our facilities leave us well positioned to achieve our strategy for growth. Siggi Olafsson, Chief Executive Officer of Hikma, said: Since arriving at Hikma, I can already see the incredible potential of this business and I m confident that the operational improvements already under way will deliver substantial value to our customers, employees, investors and the wider community. Summary financials Core Growth $million Constant currency $ $million Core revenue 1,936 1% -1% 1,950 Core operating profit 386-4% -8% 419 Core EBITDA 4 468-1% -5% 493 Core profit attributable to shareholders 252-5% -9% 276 Core basic earnings per share (cents) 105.0-8% -11% 118.5 Reported Growth $million Constant currency $ $million Revenue 1,936 1% -1% 1,950 Operating profit/(loss) -747-342% -347% 302 EBITDA 488 7% 3% 473 Profit/(loss) attributable to shareholders -843-636% -644% 155 Basic earnings per share (cents) -351.3-620% -628% 66.5
Enquiries Hikma Pharmaceuticals PLC Susan Ringdal VP Corporate Strategy and Investor Relations Virginia Spring Investor Relations Manager +44 (0)20 7399 2760/ +44 7776 477050 +44 (0)20 3892 4389/ +44 7973 679502 FTI Consulting Ben Atwell/Brett Pollard +44 (0)20 3727 1000 About Hikma Hikma helps puts better health within reach every day for millions of people in more than 50 countries around the world. For 40 years, we ve been creating high-quality medicines and making them accessible to the people who need them. We're a global company with a local presence across the United States (US), the Middle East and North Africa (MENA) and Europe, and we use our unique insight and expertise to transform cutting-edge science into innovative solutions that transform people's lives. We're committed to our customers, and the people they care for, and by thinking creatively and acting practically, we provide them with a broad range of branded and non-branded generic medicines. Together, our 8,500 colleagues are helping to shape a healthier world that enriches all our communities. We are a leading licensing partner in the MENA region, and through our venture capital arm, are helping bring innovative health technologies to people around the world. For more information, please visit www.hikma.com. A presentation for analysts and investors will be held today at 09:30 UK time at FTI Consulting, 200 Aldersgate, Aldersgate Street, London EC1A 4HD. To join via conference call please dial: +44 (0) 20 3003 2666 or 0808 109 0700 (UK toll free), password Hikma. Alternatively, you can listen live via our website at www.hikma.com. A recording of both the meeting and the call will be available on the Hikma website. The contents of the website do not form part of this preliminary announcement.
Business and financial review The business and financial review set out below summarises the performance of Hikma s three main business segments, Injectables, Generics and Branded, for the year ended 31 December. Group reported revenue by business segment $ million Injectables 776 40% 781 40% Generics 615 32% 604 31% Branded 536 28% 556 29% Others 9-9 - Group reported revenue by region $ million MENA 630 33% 641 33% US 1,201 62% 1,211 62% Europe and ROW 105 5% 98 5% Injectables Global Injectables revenue of $776 million, down 1% Strong core operating margin of 40.6%, reflecting a resilient product mix $ million Change Constant currency change Revenue 776 781-1% 0% Gross profit 480 505-5% -4% Gross margin 61.9% 64.7% -2.8pp -3.0pp Core operating profit 315 340-7% -7% Core operating margin 40.6% 43.5% -2.9pp -3.0pp
Injectables reported revenue by region $ million US 586 76% 607 78% MENA 103 13% 91 12% Europe and ROW 87 11% 83 10% Total 776 781 In, global Injectables revenue declined by 1% to $776 million. In constant currency, global Injectables revenue was in line with. Of this total, US Injectables revenue was $586 million, down 3% from $607 million in, due to increased competition on certain products with new market entrants and a reduction in contract manufacturing, partially offset by recent product launches and volume gains. During, MENA Injectables revenue was $103 million, up 13% from $91 million in. In constant currency, MENA Injectables revenue increased by 23%. As expected, sales accelerated in the second half of the year across our markets. In addition, we achieved a strong performance in Sudan and benefitted from the launch of our biosimilar product, Remsima, in new markets. European Injectables revenue was $87 million in, up 5%, reflecting a good performance in Italy and Portugal, partially offset by lower sales in Germany due to expected changes in government regulations, restricting direct sales. Injectables gross profit declined to $480 million in, compared with $505 million in. Gross margin decreased to 61.9%, compared with 64.7% in, reflecting increased competition on some of our higher margin products in the US and a slight increase in overheads due to the expansion of our manufacturing facility in Portugal. Core operating profit, which excludes the amortisation of intangible assets other than software and exceptional items of $22 million, was $315 million in, down from $340 million in. Core operating margin was 40.6%, compared with 43.5% in. This reflects a change in product mix and a slight increase in operating costs. During, the Injectables business launched 34 compounds in 88 different dosage forms and strengths across all markets. The Injectables business also received a total of 149 regulatory approvals for products in different dosage forms and strengths across all markets - 61 in the MENA, 65 in Europe and 23 in the US. In, we reached a licensing agreement with South Korea-based Celltrion, Inc. and Celltrion Healthcare, Inc (Celltrion) for Truxima (rituximab), the first biosimilar monoclonal Antibody (mab) in oncology to be granted European marketing authorisation. We now have exclusive agreements with Celltrion for three biosimilar products - Truxima (rituximab), Remsima (infliximab) and Herzuma (trastuzumab). Looking forward, we expect Injectables revenue of between $750 million to $800 million in 2018 and core operating margin to return to more normalised levels in the low to mid 30 s.
Generics Generics revenue of $615 million, up 2% from $604 million Core operating profit of $22 million, compared with $35 million $ million Change Revenue 615 604 2% Gross profit 219 196-12% Gross margin 35.6% 32.4% -3.2pp Core operating profit 22 35-37% Core operating margin 3.6% 5.8% -2.2pp Generics revenue was $615 million in, up from $604 million in. In, Generics revenue included twelve months from West-Ward Columbus, compared with ten months in. We faced significant industry headwinds during the year, primarily due to customer consolidation and greater competition following an increase in generic drug approvals by the US FDA. This resulted in greater than expected price and volume erosion. As expected, revenue growth was also limited by a reduction in contract manufacturing from Boehringer Ingelheim. Generics gross profit was $219 million in, compared with $196 million in. Excluding the impact of exceptional items, core gross profit was $225 million, in line with. This reflects an increase in costs associated with the development of our generic version of Advair Diskus, partially offset by a reduction in raw material and overhead costs. Gross margin was 35.6%, and core gross margin was 36.6%, compared with 37.7% in. Core Generics operating profit was $22 million in, compared with $35 million in, primarily reflecting an increase in general and administrative costs related to strengthening our human resources, finance and technology capabilities, which were only partially offset by lower than expected investment in R&D. Core operating margin was 3.6%, compared with 5.8% in. The Generics business reported an operating loss of $1,082 million in, largely due to the impairment of the West-Ward Columbus business. An initial impairment of product-related investments of $35 million was taken in the first half of, primarily related to the West-Ward Columbus pipeline and a change in the expected market opportunity of certain products. In the second half of the year, as pricing pressure increased due to customer consolidation and the pace of FDA approvals accelerated, we further reduced our expectations for the West-Ward Columbus marketed portfolio and pipeline. This has resulted in an additional impairment, primarily related to West- Ward Columbus of $1,070 million. 5 The impairment was slightly offset by a contingent consideration gain of $29 million related to a refund of the West-Ward Columbus acquisition purchase price, given certain regulatory conditions did not occur as expected by 24 December, and which will be used for any future related expenses. In, we strengthened our Generics management team, recruiting experienced generic pharmaceutical leaders to manage research and development, sales and marketing, business development and the West- Ward Columbus facility. We are confident that going forward the enhanced management team can deliver the changes necessary to improve customer relationships and drive stronger profitability.
During, the Generics business launched 4 compounds in 9 different dosage forms and strengths and received 22 product approvals in different dosage forms and strengths. The Generics business also signed licensing agreements for 2 new products. Since receiving a complete response letter (CRL) from the FDA on 11 May with respect to our ANDA submission for generic Advair Diskus, we have worked collaboratively with the FDA to address the majority of questions raised. Concurrently, we also entered into a dispute resolution process with the FDA with respect of questions raised regarding our clinical endpoint study. The FDA has subsequently concluded this dispute process, upholding their original determination and requiring the completion of a new clinical endpoint study. We have finalised the planning of the new clinical study and expect to start patient enrolment in the coming weeks. We anticipate being able to submit a response to the FDA with new clinical data as early as possible in 2019 and remain committed to bringing this important product to the US market. We expect Generics revenue to be between $550 million to $600 million in 2018 and core operating margin in the low single digits before adjusting for lower depreciation related to the impairment taken in. Branded Branded revenue of $536 million, down 4% and up 2% in constant currency Core operating profit of $114 million, slightly ahead of Core operating margin of 21.3% and 21.8% in constant currency, up 170 basis points $ million Change Constant currency change Revenue 536 556-4% 2% Gross profit 265 282-6% 1% Gross margin 49.4% 50.7% -1.3pp -0.4pp Core operating profit 114 112 2% 10% Core operating margin 21.3% 20.1% 1.2pp 1.7pp On a reported basis, Branded revenue was $536 million, down 4% compared with $556 million in. On a constant currency basis, before the impact of adverse movements in the Egyptian pound and Sudanese pound against the US dollar, Branded revenue increased by 2% to $565 million. The growth on a constant currency basis reflects a strong acceleration in sales in the second half of the year as well as particularly good growth in Egypt, the GCC and Sudan, partially offset by more challenging operating conditions in other markets. In Egypt, revenue grew by 18% in constant currency due to strong underlying market growth and an improvement in our portfolio mix. In the GCC, which includes Saudi Arabia and the UAE, our businesses delivered a strong performance, with revenue up 5%. In Algeria, our second largest market, revenue was in line with in constant currency, despite increased import restrictions. During, the Branded business launched 6 new compounds in 113 different dosage forms and strengths across all markets. The Branded business also received 126 regulatory approvals across the region for products in different dosage forms and strengths.
Revenue from in-licensed products represented 37% of Branded revenue, compared with 39% in. We launched 3 new in-licensed compounds during, including Actosmet, Duetact and Tamsin. In, we expanded our licensing and distribution agreement with Takeda to add attractive branded products to our MENA portfolio. The agreement builds on our long-standing partnership and enables us to expand our portfolio in key therapeutic areas, including cardiovascular, diabetes and gastroenterology. On a reported basis, Branded gross profit was $265 million, down 6% from $282 million and gross margin was 49.4%, compared with 50.7% in. In constant currency, gross profit increased by 1% compared with, and gross margin was 50.3%. Core operating profit, which excludes the amortisation of intangibles of $7 million, was $114 million, slightly ahead of, and core operating margin was 21.3%, up from 20.1%. In constant currency, core operating profit grew by 9.8% and core operating margin increased to 21.8%, up 170 basis points. This improvement in profitability reflects the benefit of more stable exchange rates in compared to, when we incurred a loss of $17 million as a result of the devaluation of the Egyptian pound against the US dollar. 6 In 2018, we expect Branded revenue growth in constant currency in the mid-single digits. As in, we expect a stronger second half, reflecting the usual seasonality of this business. Other businesses Other businesses, which primarily comprise Arab Medical Containers, a manufacturer of plastic specialised medicinal sterile containers, International Pharmaceuticals Research Centre, which conducts bio-equivalency studies, and the API manufacturing division of Hikma Pharmaceuticals Limited Jordan, contributed revenue of $9 million in, in line with. These other businesses made an operating loss of $4 million, compared with an operating loss of $2 million in. This was due to the establishment of a regional hub in Dubai to support our expansion into emerging markets. Group Group revenue was $1,936 million in, down from $1,950 million in. Group gross profit was $967 million and core gross profit was $973 million, down from $1,018 million. Group gross margin was 49.9% and core gross margin was 50.3%, compared with 52.2% in. Group operating expenses increased by 151% to $1,714 million. Excluding the amortisation of intangible assets other than software and exceptional items, core Group operating expenses were $587 million, compared with $599 million in. In, amortisation of intangible assets other than software increased to $48 million, compared with $37 million in, due to a significant upgrade of technology systems and the consolidation of an additional two months of West-Ward Columbus. Exceptional items included within operating expenses were $1,127 million, compared with $85 million in. Exceptional items comprised an impairment charge to West-Ward Columbus intangible assets of $920 million and property plant and equipment of $164 million. 7 The paragraphs below address the Group s main operating expenses in turn. Sales and marketing (S&M) expenses were $236 million, compared with $221 million in. Excluding the amortisation of intangible assets other than software, S&M expenses were $188 million, up 2% compared to, due to the consolidation of an additional two months of West-Ward Columbus, partially offset by good control of expenses across the Group.
General and administrative (G&A) expenses decreased by $5 million to $239 million in. Excluding exceptional items, G&A expenses increased by $30 million due in part to an increase in G&A costs in the Generics business related to the strengthening of human resources, finance and technology capabilities and the consolidation of an additional two months of West-Ward Columbus. Research and development (R&D) expenses were $121 million, down from $150 million in. Excluding exceptional items, core R&D expense was $115 million, down from $126 million. This primarily reflects a reduction in R&D expenditure in our Generics business following a detailed review of our R&D pipeline, which reprioritised high-value products and identified opportunities for cost savings and efficiencies. An additional $7 million of product-related investment was capitalised on the balance sheet in. This related to product development investments with third party partners in the US to support growth of our Generics and Injectables business. The combined core R&D expense and product-related investment for the Group was $121 million (6% of Group revenue), compared with $139 million (7% of Group revenue) in. Other net operating expenses were $1,118 million in, compared with $69 million in. Excluding exceptional items of $1,072 million, primarily related to the impairment of West-Ward Columbus, other net operating expenses were $46 million, down from $81 million in. The Group reported an operating loss of $747 million in, compared to a reported operating profit of $302 million in. Excluding the impact of amortisation and exceptional items, core Group operating profit decreased by 8% to $386 million and core operating margin was 19.9%, compared with 21.5% in, reflecting lower profitability in our Generics and Injectables businesses. Research and development The Group s product portfolio continues to grow as a result of our product development efforts. During, we launched 44 new compounds 8. The Group s portfolio now stands at 658 compounds. Across all businesses and markets, a total of 214 products 9 were launched during. In addition, the Group received 297 product approvals. To ensure the continuous development of our product pipeline, we submitted 226 regulatory filings in across all regions and markets. As of 31 December, we had a total of 846 products pending approval across all regions and markets. At 31 December, we had a total of 147 new compounds under development.
Products launched in Products approved in Products pending approval New New dosage Total launches, Compounds Total approvals as at 31 December Compounds Total pending compounds 10 forms and across all across approval, strengths countries 11 all countries 12 across all countries 12 Injectables 34 36 88 61 149 138 506 Generics 4 9 13 9 22 20 39 Branded 6 13 113 53 126 66 301 Group 44 58 214 123 297 224 846 Net finance expense In, net finance income was $9 million. Excluding non-cash income of $67 million resulting from the remeasurement of contingent liabilities, the Group incurred a net finance expense of $58 million, down from $60 million in. This reduction primarily reflects a decrease in bank charges and lower debt. In 2018, we expect Group net finance expense to be around $55 million. Profit/(loss) before tax The Group reported a loss before tax of $738 million in, down 451% due to the impairment of the West-Ward Columbus business. Core profit before tax was $328 million, down 9% compared to. Tax The Group incurred a tax expense of $101 million, up from $52 million in primarily due to a $49 million write-down to our US deferred tax asset due to new tax regulations in the US described below. Excluding the tax impact of exceptional items, core Group tax expense was $72 million in, down from $80 million in. The core effective tax rate was 22.0%, compared with 22.3% in. On 22 December, the Cuts and Jobs Act was enacted in the US, reducing the statutory rate of US federal corporate income tax to 21%. As a result, Hikma s measurement of its US deferred tax assets has reduced by $49 million. Going forward, we expect the reduction in the statutory US federal rate to reduce Hikma s effective tax rate, which we now expect will be in the range of 21% to 22% in 2018. Profit/(loss) attributable to shareholders Loss attributable to shareholders was $843 million, compared with profit of $155 million in. Core profit attributable to shareholders decreased by 9% to $252 million, compared with $276 million in.
Earnings per share Basic loss per share was 351.3 cents in, compared to basic earnings per share of 66.5 cents in. Core basic earnings per share decreased by 11% to 105.0 cents, compared with 118.5 cents in. Core diluted earnings per share decreased by 11% to 104.6 cents, compared with 117.9 cents in. Dividend The Board is recommending a final dividend of 23 cents per share (approximately 16 pence per share) bringing the total dividend for the full year to 34 cents per share (approximately 24 pence), up from 33 cents per share in. The proposed dividend will be paid on 24 May 2018 to shareholders on the register on 6 April 2018, subject to approval at the Annual General Meeting on 18 May 2018. Net cash flow, working capital and net debt The Group generated operating cash flow of $443 million in, compared with $293 million in. In, Group operating cash flow was negatively impacted by the investment in working capital required to support West-Ward Columbus following the acquisition in February. Group working capital days were 225 days at December, down from 240 days at December, primarily driven by an improvement in receivables in the US, following the integration of West-Ward Columbus. 13 Capital expenditure was $107 million, compared with $122 million in. Of this, around $67 million was spent in the US to expand the manufacturing capacity and capabilities of our Injectables and Generics businesses. In the MENA region, around $25 million was spent to maintain and upgrade our equipment and facilities across a number of markets. Approximately $15 million was spent in Europe, building our dedicated oncology facility in Portugal. We expect Group capital expenditure in the range of $120 million to $140 million in 2018. The Group s net debt (excluding co-development agreements and contingent liabilities) stood at $546 million at the end of December, compared with $697 million at the end of December. 14 The reduction reflects the increase in cash flow from operations. Balance sheet Net assets at 31 December were $1,528 million, compared to $2,411 million at 31 December. The decrease in net assets reflects the impairment of the West-Ward Columbus business. 15 Net current assets were $777 million, compared to $530 million at 31 December. Outlook We expect Injectables revenue in 2018 will be in the range of $750 million to $800 million, as increased competition in the US is offset by new launches and continued growth in the MENA and Europe. We expect core Injectables operating margin to return to more normalised levels in the low to mid 30 s in 2018, reflecting the expected change in product mix. In our Generics business, we are actively pursuing new commercial opportunities and focusing on the execution of our pipeline to help offset continuing price erosion. We are also identifying further cost savings for this business, which will include the consolidation of our non-injectables manufacturing operations and distribution centres in the US. We expect Generics revenues in 2018 will be in the range of $550 million to $600 million and core Generics operating margin in the low single digits before adjusting for lower depreciation related to the impairment taken in.
We expect Branded revenue growth in constant currency in the mid-single digits as we benefit from new launches of our branded generics and in-licensed products across our key markets. As in, we expect a stronger second half, reflecting the usual seasonality of this business. Across the Group, we are focused on delivering value from our marketed products, investing in our pipeline and enhancing the efficiency of our operations, to ensure we are well positioned for future growth. Responsibility statement The responsibility statement below has been prepared for the year ended 31 December. Certain parts thereof are not included within this announcement. We confirm to the best of our knowledge: The financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; The business and financial review, which is incorporated into the strategic report, includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face: and Financial statements taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to access the company s performance, business model and strategy. By order of the Board Said Darwazah Executive Chairman Khalid Nabilsi Chief Financial Officer 14 March 2018 Cautionary statement This preliminary announcement has been prepared solely to provide additional information to the shareholders of Hikma and should not be relied on by any other party or for any other purpose.
Definitions We use a number of non-ifrs measures to report and monitor the performance of our business. Management uses these adjusted numbers internally to measure our progress and for setting performance targets. We also present these numbers, alongside our reported, to external audiences to help them understand the underlying performance of our business. Our adjusted numbers may be calculated differently to other companies. Adjusted measures are not substitutable for IFRS numbers and should not be considered superior to presented in accordance with IFRS. Core Reported represent the Group s overall performance. However, these can include one-off or non-cash items that mask the underlying performance of the Group. To provide a more complete picture of the Group s performance to external audiences, we provide, alongside our reported, core, which are a non-ifrs measure. Reconciliation between core and adjusted are provided in our Financial Statements. Our core exclude the exceptional items and other adjustments set out in Note 4. Constant currency As the majority of our business is conducted in the US, we present our in US dollars. For both our Branded and Injectable businesses, a proportion of their sales are denominated in a currency other than the US dollar. In order to illustrate the underlying performance of these businesses, we include information on our in constant currency. Constant currency numbers in represent reported numbers re-stated using average exchange rates in, excluding price increased in the Branded business which resulted from the devaluation of currencies. Working capital days We believe Group working capital days provides a useful measure of the Group s working capital management and liquidity. Group working capital days are calculated as Group receivable days plus Group inventory days, less Group payable days. Group receivable days are calculated as Group trade receivables x 365, divided by trailing 12 months Group revenue. Group net debt We believe Group net debt is a useful measure of the strength of the Group s financing position. Group net debt is calculated as Group total debt less Group total cash. Group total debt excludes codevelopment agreements and contingent liabilities. Forward looking statements This announcement contains certain statements which are, or may be deemed to be, "forward looking statements" which are prospective in nature with respect to Hikma s expectations and plans, strategy, management objectives, future developments and performance, costs, revenues and other trend
information. All statements other than statements of historical fact may be forward-looking statements. Often, but not always, forward-looking statements can be identified by the use of forward looking words such as intends, believes, anticipates, expects, "estimates", "forecasts", "targets", "aims", "budget", "scheduled" or words or terms of similar substance or the negative thereof, as well as variations of such words and phrases or statements that certain actions, events or "may", "could", "should", "would", "might" or "will" be taken, occur or be achieved. By their nature, forward looking statements are based on current expectations and projections about future events and are therefore subject to assumptions, risks and uncertainties that are beyond Hikma s ability to control or estimate precisely and which could cause actual or events to differ materially from those expressed or implied by the forward looking statements. Where included, such statements have been made by or on behalf of Hikma in good faith based upon the knowledge and information available to the Directors on the date of this announcement. Accordingly, no assurance can be given that any particular expectation will be met and Hikma s shareholders are cautioned not to place undue reliance on the forward-looking statements. Forward looking statements contained in this announcement regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. Other than in accordance with its legal or regulatory obligations (including under the Market Abuse Regulation ((EU) No. 596/2014) and the UK Listing Rules and the Disclosure and Transparency Rules of the Financial Conduct Authority), Hikma does not undertake to update the forward looking statements contained in this announcement to reflect any changes in events, conditions or circumstances on which any such statement is based or to correct any inaccuracies which may become apparent in such forward looking statements. Except as expressly provided in this announcement, no forward looking or other statements have been reviewed by the auditors of Hikma. All subsequent oral or written forward looking statements attributable to the Hikma or any of its members, directors, officers or employees or any person acting on their behalf are expressly qualified in their entirety by the cautionary statement above. Past share performance cannot be relied on as a guide to future performance. Nothing in this announcement should be construed as a profit forecast. Neither the content of Hikma s website nor any other website accessible by hyperlinks from Hikma s website are incorporated in, or form part of, this announcement. Principal risks and uncertainties The Group faces risks and uncertainties that could have a material impact on its earnings and ability to trade in the future. These are determined via robust assessment considering our risk context by the Board of Directors with input from executive management. These risks and uncertainties are set out below. The contents of this table should not be considered as an exhaustive list of all the risks and uncertainties the Group faces. The Board is satisfied that these risks are being managed appropriately and consistently with the target risk appetite.
Risk and description Mitigating actions Industry earnings The commercial viability of the industry and business model we operate may change significantly as a result of political action, economic factors, societal pressures, regulatory interventions or changes to participants in the value chain of the industry. Securing of key talent to manage complex commercial environment and develop business Growth and expansion in new markets, with new products and in new therapeutic areas Portfolio management programme to focus on strategic products that support revenue, profit and margin targets Development of capacity, diversification of capability through differentiated technology, and investment in local markets Active product life cycle and pricing management across all regions Continuous alignment of commercial and R&D organisations to identify market opportunities and meet demand through internal portfolio Collaboration with external partners for development and in-licensing partnerships Product pipeline Identifying, developing and registering supply of new products from the pipeline that meet market needs to provide continuous source of future growth Partner marketing and business development departments to monitor and assess the market for arising opportunities Expansive global product portfolio with increased focus on high value and differentiated products Experienced internal R&D teams developing products and overseeing joint venture activities Product related acquisitions bolster pipeline Third party pharmaceutical product specialists brought in to assist in the development of manufacturing processes for new generic products. Organisational development
Developing, maintaining and adapting organizational structures, management processes and controls, and talent pipeline to enable effective delivery by the business in the face of rapid and constant internal and external change Strengthening executive experience with key talent to fill strategic global positions, including appointment of new CEO Investment in group-wide human capital management system Developing global HR programmes that attract, manage and develop talent within the organisation Review of organisation design, structures and accountabilities to maintain empowerment in decision making and bring appropriate level of governance Reputation Building and maintaining trusting and successful partnerships with our many stakeholders relies on developing and sustaining our reputation as one of our most valuable assets. Launch of new corporate brand to better communicate our values, purpose and strategy Internal and external monitoring for early detection and monitoring of issues that may impact reputation Investment and group alignment of corporate responsibility and ethics through transparent reporting and compliance with global best practices and strategic industry and community partnerships Communication and engagement programmes on appropriate use of products Globalising communication and corporate affairs capabilities Ethics and compliance Maintaining a culture underpinned by ethical decision making, with appropriate internal controls to ensure staff and third parties comply with our Code of Conduct, associated principles and standards, as well as all applicable legislation Board level oversight from the Compliance, Responsibility and Ethics Committee Code of Conduct approved by the Board, translated into seven languages and rolled out to all employees Active participation in international anti-corruption initiatives Anti-bribery and corruption, Sales and marketing, and other compliance programmes implemented and monitored through internal compliance assessments, Sales and marketing, and other compliance programmes implemented and monitored through internal compliance assessments Development of third party due diligence and oversight programme Information, technology and infrastructure
Ensuring integrity of data, securing information stored and/or processed internally or externally, maintaining and developing technology systems that enable business processes, and in ensuring infrastructure supports the organisation effectively IT organisational structure designed to enable coordinated, consistent and comprehensive enterprise approach Industry-standard information security solutions and best practice processes adopted and adapted for local and Group requirements Cyber-risk activity monitored and changes implemented as necessary to combat evolving threats Partnership established with strategic third parties to implement and maintain a robust Group wide information security programme Investment in enterprise-wide standardisation initiative incorporating data management, access and process control and risk management Legal, regulatory and intellectual property Adapting to changes in laws, regulations and their application, managing litigation, governmental investigations, sanctions, contractual terms and conditions and potential business disruptions Internal expertise drives awareness and understanding through policies, processes, and compliance culture Staff trained and contractual terms established to mitigate or lower risks where possible Expert external advice procured to provide independent services and ensure highest standards Board of Directors and executive management provide leadership and take action Inorganic growth Identifying, accurately pricing and/or realising expected benefits from acquisitions or divestments, licensing, or other business development activities The mergers and acquisitions team undertake extensive due diligence of each acquisition in partnership with external advisors including financial and legal advisors, investment banks, and industry specialists in order to strategically identify, value, and execute transactions. Executive Committee reviews major acquisitions before they are considered by the Board The Board is willing and has demonstrated its ability to refuse acquisitions where it considers the price or risk is too high Dedicated integration project teams are assigned for the acquisition, which are led by the business head responsible for proposing the opportunity. Following the acquisition of a target, the finance team, the management team and the Audit Committee closely monitor its financial and non-financial performance Post-transaction reviews highlight opportunities to improve effectiveness of processes
Supply chain and API sourcing Maintaining continuity of supply of finished product and managing cost, quality and appropriate oversight of third parties in our supply chain API and raw materials represent one of the Group s largest cost components. As is typical in the pharmaceuticals industry, a significant proportion of the Group s API requirements is provided by a small number of API suppliers Implementing comprehensive group wide third party management solution Maintaining alternative API suppliers for the Group s top strategic products, where possible Rigorous selection process for API suppliers and focus on building long-term supply contracts The Group has a dedicated plant in Jordan that can synthesise strategic injectable APIs where appropriate Utilising supply chain models to maintain adequate API levels Strengthening trade compliance capability to ensure compliance and drive efficiency Serialisation programme ensuring roll out across the group Crisis response and continuity management Preparedness, response, continuity and recovery from crisis events such as natural catastrophe, economic turmoil, operational issues, political crisis, regulatory intervention Central oversight being established of systems, processes, and capabilities to enhance our Group-wide resilience and preparedness Programme being rolled out to enhance our ability to respond effectively to crises, and to expedite the restoration of critical processes after disruption. Engagement with key third parties involved in preparedness, response and recovery Corporate insurance programme reviewed and updated to ensure appropriate coverage of high impact low likelihood events Product Quality Maintaining compliance with current Good Practices for Manufacturing (cgmp), Laboratory (cglp), Distribution (cgdp) and pharmacovigilance (GVP) by staff, and ensuring compliance is maintained by all relevant third parties involved in these processes Quality culture driven throughout the organisation by global Quality office initiatives, and regularly reinforced by communication from senior executives Global implementation of quality systems that guarantee valid consistent manufacturing processes leading to the production of quality products Facilities are maintained as inspection ready for assessment by relevant regulators Documented procedures are continuously improved and staff receive training on those procedures on a regular basis Continued environment and health certifications Global pharmacovigilance programme in place and being
enhanced Financial control and reporting Effectively managing treasury activities, tax position, income, expenditure, assets and liabilities, and debtors, and in reporting accurately and in a timely manner in compliance with statutory requirements and accounting standards. Extensive financial control procedures implemented and assessed annually as part of the internal audit programme A network of banking partners is maintained for lending and deposits Management monitors debtor payments and takes precautionary measures and action where necessary Where it is economic and possible to do so, the Group hedges its exchange rate and interest rate exposure Management obtains external advice to help manage tax exposures and has upgraded internal tax control systems Introduction of new automated financial consolidation module 1. Constant currency numbers in represent reported numbers re-stated using average exchange rates in, excluding price increases in the Branded business which resulted from the devaluation of currencies. 2 Core are presented to show the underlying performance of the Group, excluding the exceptional items and other adjustments set out in Note 4. 3 See Notes 8 and 9. 4 Core are presented to show the underlying performance of the Group, excluding the exceptional items and other adjustments set out in Note 4. EBITDA is earnings before interest, tax, depreciation, amortisation and the impairment charge. 5 See Notes 8 and 9. 6 In November, the Egyptian pound had devalued against the US dollar from its peg of 8:8 EGP:USD to 18.2 EGP:USD as of 31 December. 7 See Notes 8 and 9. 8 Compounds are defined as pharmaceutical compounds in the Group s portfolio and pipeline. 9 Products refer to dosage forms and strengths, across all markets. 10 New compounds are defined as pharmaceutical compounds being introduced for the first time during the period. 11 Total launches include all dosage forms and strengths that are new product launches, new geographic launches, as well as relaunches. 12 Total include all dosage forms and strengths that are either approved or pending approval across all markets. 13 Group working capital days are calculated as Group receivable days plus Group inventory days, less Group payable days. 14 Group net debt is calculated as Group total debt less Group total cash. 15 See Notes 8 and 9.
CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER Core Exceptional items and other adjustments (note 4) Reported Core Exceptional items and other adjustments (note 4) Reported Note $m $m $m $m $m $m Revenue 3 1,936-1,936 1,950-1,950 Cost of sales 3 (963) (6) (969) (932) (32) (964) Gross profit 3 973 (6) 967 1,018 (32) 986 Sales and marketing expenses (188) (48) (236) (184) (37) (221) General and administrative expenses (238) (1) (239) (208) (36) (244) Research and development expenses (115) (6) (121) (126) (24) (150) Other operating expenses (net) (46) (1,072) (1,118) (81) 12 (69) Total operating expenses (587) (1,127) (1,714) (599) (85) (684) Operating profit/(loss) 3 386 (1,133) (747) 419 (117) 302 Finance income 2 93 95 3 9 12 Finance expense (60) (26) (86) (63) (41) (104) Profit/(loss) before tax 328 (1,066) (738) 359 (149) 210 Tax 5 (72) (29) (101) (80) 28 (52) Profit/(loss) for the year 256 (1,095) (839) 279 (121) 158 Attributable to: Non-controlling interests 4-4 3-3 Equity holders of the parent 252 (1,095) (843) 276 (121) 155 256 (1,095) (839) 279 (121) 158 Earnings/(loss) per share (cents) Basic 7 105.0 (351.3) 118.5 66.5 Diluted 7 104.6 (349.8) 117.9 66.2
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER Exceptional Exceptional Items and Items and other other Core adjustments Reported Core adjustments Reported (note 4) (note 4) Note $m $m $m $m $m $m Profit/(loss) for the year 256 (1,095) (839) 279 (121) 158 Other Comprehensive Income/(loss) Items that may be reclassified subsequently to the income statement, net of tax: Effect of change in investment designated at fair value 2-2 1-1 Exchange difference on translation of foreign operations 20-20 (90) - (90) Total comprehensive income/(loss) for the year 278 (1,095) (817) 190 (121) 69 Attributable to: Non-controlling interests 3-3 - - - Equity holders of the parent 275 (1,095) (820) 190 (121) 69 278 (1,095) (817) 190 (121) 69
CONSOLIDATED BALANCE SHEET AT 31 DECEMBER Note $m $m Non-current assets Goodwill 8 282 682 Other intangible assets 8 503 1,037 Property, plant and equipment 9 828 969 Investment in associates and joint ventures 6 7 Deferred tax assets 135 172 Financial and other non-current assets 60 48 1,814 2,915 Current assets Inventories 10 488 459 Income tax receivable 53 2 Trade and other receivables 11 707 759 Collateralised and restricted cash 4 7 Cash and cash equivalents 227 155 Other current assets 95 66 1,574 1,448 Total assets 3,388 4,363 Current liabilities Bank overdrafts and loans 86 117 Trade and other payables 12 365 343 Income tax provision 82 112 Other provisions 26 27 Other current liabilities 13 238 319 797 918 Net current assets 777 530 Non-current liabilities Long-term financial debts 14 670 721 Obligations under finance leases 20 21 Deferred tax liabilities 49 15 Other non-current liabilities 15 324 277 1,063 1,034 Total liabilities 1,860 1,952 Net assets 1,528 2,411 Equity Share capital 16 40 40 Share premium 282 282 Own shares (1) (1) Other reserves 1,193 2,075 Equity attributable to equity holders of the parent 1,514 2,396 Non-controlling interests 14 15 Total equity 1,528 2,411
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER Merger and Revaluation reserves Translation reserves Retained earnings Total reserves Share capital Share premium Own shares Equity attributable to equity shareholders of the parent Noncontrolling interests Total equity $m $m $m $m $m $m $m $m $m $m Balance at 1 January 38 (161) 1,144 1,021 35 282 (1) 1,337 15 1,352 Profit for the year - - 155 155 - - - 155 3 158 Effect of change in investment designated at - - 1 1 - - - 1-1 fair value Currency translation loss - (87) - (87) - - - (87) (3) (90) Total comprehensive Income/(loss) for the year Total transactions with - (87) 156 69 - - - 69-69 owners, recognised directly in equity Issue of equity shares for acquisition of subsidiary Cost of equity-settled 1,039 - - 1,039 5 - - 1,044-1,044 employee share scheme - - 22 22 - - - 22-22 Deferred tax arising on share-based payments - - 1 1 - - - 1-1 Dividends on ordinary shares (note 6) - - (77) (77) - - - (77) (1) (78) Acquisition of subsidiaries - - - - - - - - 1 1 Balance at 31 December and 1 January 1,077 (248) 1,246 2,075 40 282 (1) 2,396 15 2,411 Loss for the year** (1,039) - 196 (843) - - - (843) 4 (839)